How the Fed’s $200-Billion Intervention Indirectly Boosts Visa’s IPO Valuation

28-days to a Market Nightmare

(click herefor update from Ye Xie and Gavin Finch at Bloomberg on “Concern Fed Package Wont Suceeed“)

Tuesday’s $200-billion infusion in Treasury securities did more than subsidize the market’s 400-point Dow rise (3.6%), it indirectly is fortifying investor confidence in advance of next week’s planned Visa IPO. It is also a maneuver to briefly sustain market perceptions that the banks are again fiscally healthy.

A weakened stock market would have spelled trouble for getting the Visa, Inc. IPO off the ground. Without this help from the Federal Reserve to the banks, the stock market’s glumness would overshadow what is planned as the nation’s largest initial public offering ever.  Instead, the Fed designed this liquidity quick-fix that will last just 28-days- coincidentally, just long enough to see the Visa IPO get funded.

What happens on April 9^th, when the $200-billion bailout is called back?

The billions in increasingly valueless home loan packages will again be an issue in 28-days, but just after the investors’ sentiment is uplifted by this artificial market manipulation.  As the banks rush to unload giant portions of their ownership in Visa Inc. investors should look closely at the real fable behind this Fed action.

• What happens to the equity market and the post-Visa IPO valuations then?
• What happens next month to the valuation and liquidity of the mortgage-backed securities that are being held as collateral?
• The banks’ balance sheets will be mellowed and ripened with billions of dollars gained from transferring part ownership of Visa Inc. into public hands.
• The same Visa, Inc. IPO risk factors remain, even after the Fed’s funding prop.
• In 28-days, after the Fed’s temporary fix by buying mortgage securities that others don’t want expires, what do the new Visa Inc. Shareholders do after the banks have their money?

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